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Booster Club Advice

High Flyer USA

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Sep 23, 2019
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#1: Does anyone have experience having a competitive athlete on your gymnastics team that is also a paid employee of the gym? Is a 501c3, non-profit booster club still allowed to give them the financial benefits of the booster club (meet fees, travel expenses, etc) and remain IRS compliant?

#2: Assuming the answer to #1 is yes, we can support those athletes, if one of the athletes is a coach for the team and the parents pay for the coach's travel expenses to a meet, should the booster club pay for her meet fees (considering all other athletes must pay for meet fees AND travel expenses)?
 
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Cmumgym

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Apr 26, 2019
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Wouldn’t it be one or the other. If they are travelling as a coach and gymnast competing either they pay for their own way or booster club helps but doesn’t include them in the divy up with number of
Coaches attending. As long as there is no double dipping it should be fine.
 

skschlag

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Jul 19, 2011
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So, if your booster club pays the meet fees for all athletes and this gymnast is competing, the club would pay his/her meet fees just like any other athlete.

The rest gets fuzzy if the BC is paying the coaches. I am not sure how that would work since the gyms we have been at always paid the coaches. So they would get that money in a regular paycheck, just like any other coach.
 

High Flyer USA

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Sep 23, 2019
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USA
So, if your booster club pays the meet fees for all athletes and this gymnast is competing, the club would pay his/her meet fees just like any other athlete.

The rest gets fuzzy if the BC is paying the coaches. I am not sure how that would work since the gyms we have been at always paid the coaches. So they would get that money in a regular paycheck, just like any other coach.
The booster club doesn't pay the coaches salary. The gym pays their salary but also collects a 'coach's travel fee' along with tuition each month so, in essence, the parents pay for the coach's travel (the gym could pay a portion as well. I'm not privy to that).
 

LemonLime

Active Member
Proud Parent
Jul 16, 2007
741
Not directly on point, but the below is a good gymnastics booster roadmap:

Booster Club Loses Exemption Because of Fundraising Program
Booster Club Loses Exemption Because of Fundraising Program
Issue:
July 16 - September 30, 2013
A booster club fundraising program that allowed parents to meet the mandatory assessment for their children’s participation by raising funds from others has cost the club its 501(c)(3) charitable exemption. The Tax Court has upheld the IRS’s revocation of exemption. The Court ruled that the club “operated in a manner that allowed substantial private inurement and promoted private, non-public interests.” The Court concluded that the club did not operate exclusively for charitable purposes.
The Capital Gymnastics Booster Club served as an organization to support youth gymnasts at the Capital Gymnastics National Training Center in Virginia, a separate for-profit corporation. Each athlete’s family paid monthly fees directly to the Training Center ranging between $200 and $330 depending on age of their children, plus other costs of equipment, uniforms, travel, etc. They had to pay the club $40 dues for its operating expenses, and between $600 to $1400 a year per child for each athlete’s costs of competition, including entry fees and coaches’ travel costs.
The parties stipulated for the litigation that the Club’s “primary purpose was to raise funds.” A parent could simply pay the child’s assessment in cash, but had the option to offset the assessment by voluntary fundraising. Fundraising included selling wrapping paper, discount cards, cookie dough, candles, ornaments and grocery store certificates bought by the Club at a discount and resold at face value.
Families who participated in the fundraising were awarded “points” based on the profit from their activities. Some also earned additional points for organizing the efforts or serving on the board of directors. The points reduced their direct payment requirements. Slightly less than half of the parents participated in the points program, but many were able to cover 50% to 70% of their fees with the work. Only 7% of the money raised from fundraising was used for the organization as a whole. The rest was allocated directly to the family that raised the funds.
The organization provided no scholarships and based its fundraising program on the deliberate effort to prevent those it called “freeloaders” and “moochers” from benefiting from the fundraising activity of others.
The IRS examined the Club in 2005 and revoked its 501(c)(3) exemption. It said that the Club failed to establish that its income “did not inure to the benefit of private individuals and shareholders” and that it was “operated for a substantial private purpose.” The Club petitioned the Tax Court for a declaratory judgment that would reverse the IRS determination.
The Club argued that it operated exclusively for a charitable purpose and that its method of unequal sharing of fundraising profits did not give rise to a “constructive distribution” because the organization never paid money to any of its members and spent the money on expenses of the athletes, a “well-defined charitable class.” It argued that its policy should be recognized as a “best practice” for similar organizations. The IRS did not “quarrel” with the purpose of the organization as fostering amateur athletics, but said that the almost dollar-for-dollar allocation of fundraising for the benefit of those who raised the funds constituted inurement and private benefit.
The Court agreed with the IRS. The Club “allowed substantial private inurement to the parent-member-insiders who fundraised (by providing to those insiders relief from an economic burden in the form of ‘points’ applied to their assessments) and thereby conferred an impermissible substantial private benefit on the child-athletes of those parents only (as opposed to its child-athletes generally). Capital Gymnastics authorized parent-members to raise funds for their own benefit but under the name of Capital Gymnastics and trading on its tax-exemption ruling. Capital Gymnastics rigorously assured that its fundraising did not generally benefit all the child-athletes in its programs but rather benefited only the children of parents who did the fundraising.”
The Court went on to say: “This is not a circumstance (like, say, a school band’s sale of candy or a church youth group’s carwash for a once-a-year event) in which fundraising is a tiny fraction of the organization’s overall function; here, the fundraising is, instead, the admitted ‘primary function’ of the organization. This is not a circumstance in which the individual’s contribution of his share of the cost is optional or where scholarships are made available for those who cannot afford the cost. Nor is this a circumstance in which every member is required to perform fundraising and no one can buy his way out; rather, the fundraising was an option chosen by those who wanted to earn their assessments.” It also said that the assessments were not “de minimis charges” that might be covered by a paper route or babysitting but were “serious parental obligations” of as much as $1400 a year.
The Court said it did not overlook the Club’s legitimate charitable activity in fostering sports competition. “The issue here,” it said, “is not whether Capital Gymnastics had any charitable purpose but whether (as the statute requires) it was operated exclusively for charitable purposes. We hold it was not.” (Capital Gymnastics Booster Club v. Commissioner, T.C. Memo 2013-193, 8/26/13.)
YOU NEED TO KNOW
This case illustrates many of the problems arising in youth sports and booster club fundraising and how easy it is to go wrong in administering programs. This club apparently aggregated a whole series of questionable policies into one that the IRS finally said crossed the line.
There are a number of other potential issues that were not decided in this case because they were not directly relevant. The Court said in a footnote that it did not consider whether the Club “facilitated improper claims of tax deductions by members.” The Club had said that it told its members that payments were not deductible, but it acknowledged that some of its members might have deducted the payments. The Court did not characterize the payments by outsiders who participated in the fundraising and did not say whether there was any charitable element in the payment. It did not consider whether the “points” parents earned by fundraising were really a form of taxable income to the parents because they relieved the parents of a financial obligation.
Nor did the Court consider whether the Club was providing a private benefit to the for-profit Training Center, since all of the participants were paying the Center for instruction and would not have been able to participate in the competitions without the Club’s payment of extra expenses.
The IRS didn’t raise the issues and the Court had no reason to decide them. But for a full analysis of the tax implications of the operation of the Club they are clearly relevant.
 
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LemonLime

Active Member
Proud Parent
Jul 16, 2007
741
You have to think of each expense paid by the booster separately.

The booster cannot pay expenses which inure to the benefit of the private gym. Expenses need to benefit the member gymnasts based on the purposes covered in the booster's bylaws. It's very tricky when a booster pays for coach expenses because both the gym and the booster members benefit. If the coach is an employee, and meet attendance is required by the employer, the booster cannot be seen to be paying the expenses of the private club. This issue was mentioned, but not directly addressed because the case was decided on other grounds, in the Capital Gymnastics case.

Boosters cannot pay the session fees of coaches who are required to attend meets by their employer (the gym). When they do, boosters are assuming the private expenses of the gym. In so doing, the booster would need to act like an employer for tax purposes (i.e., securing withholding and issuing W2s) and would be a non-exempt entity.

I've never heard of a prohibition against paying legitimate expenses when the person benefiting is also a member of the club. Paying the coach/gymnast entrants fee would be prohibited, however, unless all gymnast members were similarly paid.
 

High Flyer USA

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Sep 23, 2019
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You have to think of each expense paid by the booster separately.

The booster cannot pay expenses which inure to the benefit of the private gym. Expenses need to benefit the member gymnasts based on the purposes covered in the booster's bylaws. It's very tricky when a booster pays for coach expenses because both the gym and the booster members benefit. If the coach is an employee, and meet attendance is required by the employer, the booster cannot be seen to be paying the expenses of the private club. This issue was mentioned, but not directly addressed because the case was decided on other grounds, in the Capital Gymnastics case.

Boosters cannot pay the session fees of coaches who are required to attend meets by their employer (the gym). When they do, boosters are assuming the private expenses of the gym. In so doing, the booster would need to act like an employer for tax purposes (i.e., securing withholding and issuing W2s) and would be a non-exempt entity.

I've never heard of a prohibition against paying legitimate expenses when the person benefiting is also a member of the club. Paying the coach/gymnast entrants fee would be prohibited, however, unless all gymnast members were similarly paid.
The coach's meet fee would not be for her position as coach for the team. She is an active competitor on our team as well as the coach. According to the coach, the gym does NOT pay for her meet fees. Only her travel expenses are paid by the gym because of her coaching obligation. She attends the meet as both a coach and a competing athlete. Additionally, the meet fees for all gymnast members attending would also be paid. When considering whether to pay the coach's meet fees I'm assuming we could look at it as her wearing two hats: one as a coach and one as an athlete. As long as we are paying all athletes equally we could include her as "athlete" and pay for her meet fees. I don't see how the gym would be benefiting from her meet fees being paid as the gym is not requiring her to compete at the meet (not part of her job duties). She is only required to attend as a coach. Correct?
 
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M2Abi

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Jan 21, 2016
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[/QUOTE]

Boosters cannot pay the session fees of coaches who are required to attend meets by their employer (the gym). When they do, boosters are assuming the private expenses of the gym. In so doing, the booster would need to act like an employer for tax purposes (i.e., securing withholding and issuing W2s) and would be a non-exempt entity.


[/QUOTE]

Do you have any further documentation for this? All the booster clubs I've been involved with have paid session fees for the coaches.
 
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LemonLime

Active Member
Proud Parent
Jul 16, 2007
741
@High Flyer USA I agree that if the athlete payment is permissible, and the coach payment is permissible, that's what matters. Dual hat is the correct way to look at it.

@M2Abi The problem is the bleed between the booster and gym. If the coach is working at the direction of the gym and as an employee of the gym, the gym cannot transfer its for-profit activities to the booster. The booster can support coaches who are 1) training or 2) supporting the purposes of the booster. Look at IRS Circular https://www.irs.gov/pub/irs-tege/eotopica93.pdf which mention coaches travel expenses to meets and training, but avoids extending payments for coach wages or session fees.

The analysis is highly fact specific. For instance, a young coach who chooses to coach at a meet, on her day off, and attends a judge's clinic at the meet might easily be paid within the exempt purposes of the booster for her time. Another coach who is not paid her wages on a Friday because she was instructed to coach at a meet instead, and receives no training at the meet, might not be paid within the exempt purposes of the booster. I'll try to find cases/letters on point, but I'm not sure how long it will take me.

One inconsistent fact is that the more supervised a coach is at a meet, the more likely they are being directed like an employee, but also the more likely they are being trained.
 
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mommyof1

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Jan 31, 2012
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I do not practice law, but I am confused as to why a nonprofit booster club couldn’t pay a coach’s wages or session fees, either directly to the coach or through the gym. Providing coaching at meets seems directly related to the charitable purpose of the organization.

As an employee of a 501c3 I am certain I get paid, and I am able to hire consultants and subcontractors.

I cannot believe I just skimmed an IRS circular for fun.
 

moogacat

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Nov 1, 2018
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I do not practice law, but I am confused as to why a nonprofit booster club couldn’t pay a coach’s wages or session fees, either directly to the coach or through the gym. Providing coaching at meets seems directly related to the charitable purpose of the organization.

As an employee of a 501c3 I am certain I get paid, and I am able to hire consultants and subcontractors.

I cannot believe I just skimmed an IRS circular for fun.
That's because the coach isn't an employee of the tax exempt org-- they are an employee of the associated for profit org. If the non-profit is paying the employees of the for profit org, it raises the appearance that the non-profit is a pass-through so that the for profit org can avoid taxes. As noted above, it's a highly fact-intensive analysis and there may be situations where coaches fees can be paid, but it's certainly a practice that will raise eyebrows by an IRS reviewer.
 

Flicfliclay

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Aug 12, 2016
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This brings great confusing to me as our 501c3 collects all fees from parents, which include: meet entry fees and session fees/coaches fees. The booster club then pays the coaches session fees as well as hotel, travel etc. So, by reading this the 501c3 should not be doing that?
 

MuggleMom

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Former Gymnast
Dec 22, 2016
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This is why I wont be joing our Booster Club. It is struggling and people keep asking me to come help (I am very active with my daughters PTA and if I do something I do it right) when I looked up the actual way a booster must be run I know our gym isnt doing it right. I also know it would be really hard to get parents involved in doing it right because everyone must benefit equally whether or not they participate. You are not allowed to charge a joining fee for the booster. You are not allowed to "fundraise" for your athlete-- all funds have to go into a group account that all kids (whether or not their parents are in the booster or participate in fundraising) benefit from. You cant pay for equipment. Gym owners and coaches are not supposed to have any say in how the money is spent.

Basically the booster club can really only fundraise to cover athlete costs and must do so in a relatively equal manner. One exception is you can give more to an athlete based on achievement (like making it to state or nationals gets you more money to go to those meets but it has to be for all athletes that go to that event not just the ones of parents in the booster).

Read the rules on boosters and it will give you a headache....and make you run in the opposite direction!
 

twinmomma

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Jun 13, 2013
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That's because the coach isn't an employee of the tax exempt org-- they are an employee of the associated for profit org. If the non-profit is paying the employees of the for profit org, it raises the appearance that the non-profit is a pass-through so that the for profit org can avoid taxes. As noted above, it's a highly fact-intensive analysis and there may be situations where coaches fees can be paid, but it's certainly a practice that will raise eyebrows by an IRS reviewer.
Our coaches are employees of both. Meets and such are run by and paid for by the booster club. Their "in gym" wages are paid for by the gym. The gym does not direct the coaches on which meets they are to attend. That work is all part of the booster organization.
 

FlippinLilysMom

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Jun 7, 2016
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Our booster club doesn't collect any funds from the parents, neither does the gym (except for the monthly tuition). All fees are paid by the gym and invoices are given to the booster club who then refunds the gym. This is for meet fees, coaches fees, coaches travel fees and this year the booster club was able to pay for comp leos for all compulsory and optional gymnasts.
 
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